Cutting the Cost of Buying Your Next Home: VA Home Loans and Disability Ratings

homeowner

By Ryan Sears, The Gertsburg Law Firm

Buying a home is the most expensive purchase most of us will ever make.  For many veterans, the VA Home Loan remains a tremendous benefit of their service that allows them to buy a home with little or even no money down.  Those same veterans, however, are sometimes unaware that part of their final costs will include a VA funding fee.  That funding fee isn’t the same for everyone.  Different rates exist for regular military versus reservists and National Guard, and those rates vary depending on what percent of the closing cost is paid for a down payment:

Type of Veteran Down Payment % for 1st Time Use % for Subsequent Use
Regular Military None 2.15% 3.3%
5% or more 1.50% 1.50%
10% or more 1.25% 1.25%
Reserves/National Guard None 2.4% 3.3%
5% or more 1.75% 1.75%
10% or more 1.5% 1.5%

The VA relies upon your Certificate of Eligibility to determine what category and funding fee applies to you.  So even if you are currently a reservist, but you had enough time on active duty prior to joining the reserves or National Guard to qualify for the VA Home Loan, make sure your Certificate of Eligibility reflects you being eligible because of your active duty service.

In real dollars, what does this look like?  If a first time home buyer purchases a $150,000 home with no money down, as a member of the reserves, she will pay $3600, but if she uses her active duty DD-214 to get her certificate of eligibility, she will only pay $3225.  Additionally, if that same veteran has a disability rating from the VA, she is exempt from paying this VA funding fee.  Veterans entitled to receive compensation for service-connected disabilities but are receiving retirement or active duty pay and spouses of deceased veterans who died in service or as a result of a service-connected disability are also exempt from paying a VA funding fee.

Of course, that raises the question: what if the veteran uses a VA Home Loan to purchase their home but doesn’t apply for a disability rating from the VA until after closing on the home: can they get their funding fee back?  The answer is yes!  The key is that the veteran must request the VA finds one of the conditions for which they receive a disability rating began before the closing date on their home.  If so, the veteran can send a letter, via their lender, to the VA to recoup the VA funding fee.  If the funding fee was paid for out of the initial mortgage, that amount will be reduced from the principle of the mortgage, otherwise, the veteran will be getting a check for the amount of the funding fee.

Bottom line: don’t forget about your service-connected disability when applying for a VA Home Loan or, if you get a disability rating after you get the loan, apply to get your VA funding fee back!